options on futures restrictions or gotchas?

[Nick Nikolo]

I am saying both. It is not difficult to buy at the ask in my experience.
But it is very difficult to sell your position afterward. It doesn't matter that the posted bid price and bid size are both positive values and that my size matches the bid size. I set my limit sell order well below the bid price (50% below) and could not get a fill... Then I looked at other posted prices for gold, silver, etc to see if it is common for the bid price to be higher than the ask, indeed too many quotes are like that.

 

[CBC]

Hey Nick,

Yea I agree, ur probably limited to ES, ZN, CL and mbey 6E. When I first started wanting to trade future options I wanted to trade the weeklies of the currencies. However I couldn't get taken up on my offers. I sat there for 5 mins waiting once. Even if you offer better than the mid you still might not get filled.

 

[rick cremer]

The biggest gotcha that I discovered (with real money) about options on futures is that their market is highly illiquid.

Not all options on futures are "illiquid." You need to look at the individual symbols before making a broad sweeping statement like that. I trade, as I have said before, the E-mini S&P 500 options. Yesterday the volume for all the months combined was 298,000 contracts and an OI of 2.8m. Spreads are reasonable also. The published minimum spreads are 0.25 for premium >5.00 and .05 for premium <5.00. The spreads are more than that at the moment because of uncertain market expectations and volatility. If you want spreads of a penny or two then trade the SPY. High volume, high OI, and very tight spreads, oferten 2 or 3 cents.

The bid size is totally misleading, it doesn't mean anything at all. It may as well be 0.

Then I recommend that you steer clear of those markets. Especially the "illiquid" markets like copper and palladium. They had a volume of 62 in the case of copper and 0 in the case of palladium. Bid does mean something, as does ask. Simply put it is essentially the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it. In an illiquid market such as copper or palladium the bid/ask may indeed be very wide or none at all. In a liquid market such as the /ES or SPY the
the spreads usually are very very narrow.

 

[i960]

The biggest gotcha that I discovered (with real money) about options on futures is that their market is highly illiquid. It is quite common to see COMEX bid prices that are much higher than the ask and you can never get a fill at any price. The bid size is totally misleading, it doesn't mean anything at all. It may as well be 0.

This is totally product specific or something else is going on here. Never had a problem trading GC options myself. If you pick a product that is illiquid you'll run into issues - so stay away from illiquid products. Here's a list of FOPs I've traded that never had a problem: ES, CL, 6E, 6J, GC, but there's definitely more than that out there. If you're encountering illiquid products in COMEX it's usually because COMEX itself doesn't have the most liquid products aside from Gold, Copper, and Silver.

Other than that there's zero reason I'd ever even mess with equities aside from a few ETFs that aren't even representable in the futures market (meaning the futures don't even have a product for it).

I set my limit sell order well below the bid price (50% below) and could not get a fill...

BTW: What broker? Just wondering if you're with IB and running into SMART orders and the "marketability" nonsense that IB does. If you indeed are, then don't use SMART orders, always use directed orders at the specific exchange (e.g. COMEX, NYMEX, etc).